You have a choice to make during your financial journey; either take that journey on your own or enter into a relationship with an advisor to help you along the way. If you take your journey on your own, and are “self directed”, that means you should have the experience, discipline, interest time, knowledge, and skill in all matters that affect your or your family’s finances. Even if you have been self directed, you may need to find a trusted advisor to help your spouse or family in the event you are deceased; an advisor may need to succeed you in the management of your family’s financial affairs. If you choose to work with an advisor, you realize you can use some form of help in some area of your family’s financial circumstances. Your advisor should be able to do something that makes a meaningful positive impact for your family’s financial future. Ask yourself what you are looking for in an advisor; are you looking for someone to manage an investment account for you or are you looking for someone to go farther into more issues that you and your family face such as the need for insurance or estate planning? How long do you want this relationship to last? You may be looking for a one time set of recommendations or an ongoing collaboration that lasts for years or decades. Ask your advisor specifically what they are going to do for you and your family. You should understand your advisor’s investment philosophy and processes before you hire them. Does your advisor pick hot stocks or are they using diversified investments in an asset allocation strategy that is consistent with your risk tolerance, goals and time horizon? How much cost is associated with the operation or management of the investments you own? You should expect to communicate with your advisor from time to time; how often will you receive a call from your advisor or meet with them?
Determine whether your advisor is in the position of having a conflict of interest with you, which depends on a number of various factors, including how they are compensated. Always ask an advisor how they are compensated for what they do for you. If they provide you with financial planning services, do they charge you by the hour or through a flat fee? If they provide you investment advice, do they get a commission from a product sponsor or brokerage firm every time the make a trade for you or do you pay them a fee as a percentage of your assets under management? If your advisor is not self employed, does their employer have a sales quota or other expectations for the sales of products or services? If your advisor’s employer compensates them differently depending on the service they provide you, there may be a conflict of interest between you and your advisor. Ask your advisor if they are willing to be your fiduciary, which means they commit to putting your interests first at all times. You should know your advisor, like them, and have confidence in their competence and character. Ask the advisor what they perceive to be the greatest potential impediments to your and your families success. Issues such as inflation and rising healthcare costs are examples of answers that should come up in that conversation. What is their educational history? What professional certification processes have they completed (such as the CERTIFIED FINANCIAL PLANNER™ or “CFP®” professional designation)? Do they have any history of any customer complaints, regulatory action, or any other history that could be construed as showing poor character? You should also ask an advisor about their professional experience, including how long they have been an advisor and how long they intend to continue to be an advisor. Is the advisor a member of a team or are they acting alone; it may be important for you to work with more than one advisor. The bottom line is you should be able to trust your advisor.
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